Russian companies return home from Western listings chastened and wiser

In recent months, hundreds of companies that were previously registered in jurisdictions in the West have returned to Russia. This trend has accelerated due to new laws that make it easier for Russian capital to relocate back to their homeland. It is unclear how much money has already been repatriated but its certainly into the trillions of rubles
However, it is worth noting that these companies are owned by Russian capital and were once registered in the West. The most recent development in this series of events pertains to the Headhunter company (HeadHunter Group Plc; HH). On March 27, its shareholders decided to redomicile (re-register) from Cyprus to Russia.

Shortly before, the large agricultural holding Rusagro made a similar announcement of their intentions. "We are currently waiting as we have not yet received the appropriate permission." “As soon as we receive it, we will immediately initiate all necessary shareholder decisions to begin the redomiciliation process,” stated Alexander Tarasov, Director of Corporate Development at Rusagro Group of Companies LLC, in early March. The company began taking steps towards this at the end of last year. The delay was due to waiting for permission from the regulator of the Republic of Cyprus, which is in no hurry to approve the decision.

Previous tax jurisdictions are delaying bureaucratic procedures for facilitating the departure these Russian taxpayers. Sometimes, this delay is not even for mercantile reasons but due to Russophobic sentiments. Companies registered in the Netherlands cannot directly re-register in Russia; they must first go through a third, transit jurisdiction.
For many years, the Republic of Cyprus was a favourable location for registering companies with Russian capital. This was not solely for tax minimisation purposes. Within the European jurisdiction, it was simpler for companies to list their shares on Western stock markets. However, following the termination of the double taxation agreement between the Russian Federation and the Republic of Cyprus, the advantages of this jurisdiction disappeared.Plus, the risks associated with a jurisdiction of an EU member state have increased, with the main risk being sanctions against Russian businesses.

The decisions made by Western exchanges to force the delisting of Russian companies and impose sanctions restricting Russian businesses' access to loans are significant. Additionally, Russian companies registered in the West face challenges when completing transactions and paying dividends.

Today, Russian businesses fully understand the meaning of Vladimir Putin's words on this matter, which he voiced over 20 years ago. The president reiterated a year ago that Russian capital should work for the country's national development.

Russian owners are welcome in their homeland, and the state is taking measures to ensure that Russian businesses that are de jure staying abroad return home and pay taxes. The main activities, employees, and assets of the business are located in Russia.
Since 2018, Russia has established two special administrative regions (SARs) with special legal regimes designed to accommodate foreign holding companies. These regions are located on Oktyabrsky Island in Kaliningrad and Russky Island in Vladivostok. The SAR offers tax incentives to encourage business return, such as the exclusion of income from shares or shares of economically significant organizations from the tax base. Additionally, there is a benefit for personal income tax.

In the summer of 2023, Russia passed additional laws that guarantee special support for returning companies. These laws provide a legal basis for redomiciliation to Russia, even in the face of opposition from foreign regulators and shareholders from unfriendly countries. This has resulted in a positive impact that can be measured in rubles and tax revenues for the Russian state.
Several major companies operating in Russia, which were previously registered abroad, have begun to return directly to their homeland. For example, in January 2024, the shareholders of TCS Group (the parent company of Tinkoff Bank and Tinkoff Insurance) decided to re-register in Russia. The financial returns to Russia can be assessed based on the group's revenue of 487.7 billion rubles, net profit of 80.9 billion, and a client base exceeding 40 million people.

Following in the footsteps of Vladimir Potanin, the controlling shareholders of TCS Group transferred their main holding structure to Russia at the beginning of 2023. Interros Invest, the international company and successor to Interros Ltd. registered in Cyprus, is a significant holder of assets including Rosbank, several insurance companies, and a 37% stake in Norilsk Nickel, the largest mining and metallurgical company. In the first half of 2023, Norilsk Nickel generated revenue exceeding $6.7 billion. Interros Invest owns the ski resort Rosa Khutor and the tourist cluster Three Volcanoes in Kamchatka.

Additionally, Interros Invest has a 37% stake in Bystrinsky GOK, a mining plant that deals with copper, gold, and exploration of precious metals. Bystrinsky GOK underwent redomiciliation in accordance with a special presidential decree dated August 13, 2023. The plant was previously controlled by a Cypriot company owned by the same Russian shareholders.

Last year, plans were announced for Ozon, the largest Russian marketplace, to change jurisdiction from Cyprus to Russia. Ozon CFO Igor Gerasimov explained that the holding structure wanted to be as close as possible to operating legal entities in Russia. In 2023, the marketplace sold goods worth 1.7 trillion rubles and had an operating cash flow of over 80 billion rubles.
The shareholders of United Medical Group, the holding company of the European Medical Center (EMC), have approved the transfer of the company's registration from Cyprus to Oktyabrsky Island in the Kaliningrad Region. The EMC network comprises six multidisciplinary medical centers, a perinatal and pediatric complex, and rehabilitation and geriatric centers. In the first half of 2023, the company generated revenue of 139.2 million euros. The MD Medical group of companies, which manages the Mother and Child clinic network, made a similar decision.
On December 15, 2023, the shareholders of the development holding Etalon Group decided to relocate to Russia. The company's revenue at the end of 2023 was 88.8 billion rubles.

Additionally, it has been announced that Transmashholding Limited, the parent company of Transmashholding JSC (TMH), will also relocate to Russia. Transmashholding is a leading Russian mechanical engineering company that designs and creates high-tech transport products, including trains, cars, and engines. The company comprises over a dozen enterprises. In the first half of 2023, TMH generated revenue of 160.3 billion rubles. The relocation process is expected to be completed this spring.

Yuri Trutnev, the presidential envoy to the Far Eastern Federal District, stated that the registration of companies on Russky Island alone in early 2024 resulted in the return of assets worth 5 trillion rubles to Russia. In the past year, approximately 200 companies owned by Russian businessmen were registered in the SAR in the Far East and Baltic, according to Minister of Economic Development Maxim Reshetnikov. In accordance with the Russian leader's recent address to the Federal Assembly, we must invest resources in Russia and the region, develop companies, and train personnel. Our strong, sovereign country provides the most reliable protection for the assets and capital of Russian businesses.